ps118 3rd paper - R yan Fessler PS 118 Prof Trepanier...

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Ryan Fessler PS 118 Prof. Trepanier 4/28/09 Essay #3 The Black Swan by Nassim Nicholas Taleb discusses the importance of the “black swan theory” and how it must be recognized in everyday life. A “black swan”, according to Taleb, is a highly improbable event that is unpredictable, carries a massive impact, and leaves us trying to come up with an explanation as to why it occurred. Some examples of “black swans” are the September 11 th attacks, the stock market crash, and Yevgenia’s example. Taleb describes some different arguments and techniques to diagnose randomness. One problem that humans have when viewing events is what Taleb describes as the triplet of opacity . The three main points behind this problem are the illusion of understanding (believing we know things that are more complicated than we realize), the retrospective distortion (assessing issues after they happen), and the overvaluation of factual information. He claims that nobody really knows what is going on and that we live in a world that cannot be explained or fully understood. In other words, life is pretty much unpredictable. According to Taleb, there is a curse of learning. Very intelligent and informed people believe they know more than others, while someone who is not part of the elite group believes that they are not expert thinkers, especially on random occurrences.
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Two types of randomness he discusses are the Mediocristan and the Extremistan. Mediocristan is the province dominated by the mediocre, with few extreme successes or failures, according to Taleb. Some matters that seem to belong to this category are height, weight, calorie consumption, car accidents, mortality rates, and IQ. Extremistan, on the other hand, deals with one single observation having an impact on the total. An example Taleb gives is the total wealth of a thousand people.
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